Glamor Economics

Chapter 116

Chapter 15 Section 7 The "capital" of commercial banks - bank capital
In the 19s, the financial business in Hong Kong was generally operated concurrently by major foreign firms, such as Jardine Matheson and Qichang.In addition, some banks headquartered in the UK and India are also engaged in some financial business in Hong Kong, such as Agricole Bank and Standard Chartered Bank.It's just that the center of gravity of these banks is not in Hong Kong. Therefore, the financial services they provide cannot fully meet the needs of trade.By the 60s, this lack of financial services had become increasingly apparent.

British businessmen in India were keenly aware of this business opportunity.Some British businessmen in Mumbai began to prepare for the establishment of the "Royal Bank of China" for the Chinese market.After the news spread to Hong Kong, it attracted the attention of another British person, Su Shilan, the main promoter of HSBC Bank.At that time, Su Shilan was the agent of the British Shipping Company in Hong Kong and had worked in Hong Kong for more than ten years.Due to the reputation of the British Shipping Company and his own qualifications, Su Shilan already has a considerable degree of appeal in Hong Kong.Su Shilan was determined to open a bank first to provide convenience in economic exchanges for businessmen in foreign firms conducting trade activities in Hong Kong, Shanghai and other regions.

Su Shilan took the bank's establishment plan and traveled all over the major foreign firms in Hong Kong, hoping to get the support of these foreign firms. He himself holds a registered capital of 500 million Hong Kong dollars.Most well-known foreign firms readily agreed to take shares.The required funds were quickly raised. On August 1864, 8, HSBC held the first meeting of the interim committee attended by several foreign firms. In early 6, HSBC completed the preparatory work. On March 1865, HSBC officially opened for business.

Why was HSBC established so quickly in just a few months?This is all due to the fact that the founder Su Shilan obtained sufficient capital, which is a large amount of capital necessary for the establishment of any bank.The capital of commercial banks plays a key role in maintaining daily operations and ensuring long-term viability. This key role is mainly reflected in six aspects:
1. Capital is a shock absorber.Capital reduces the risk of bank failure by absorbing financial and operating losses until management notices the bank's problems and restores the bank's profitability.

2. Before the inflow of deposits, the capital fund provides the funds required for the registration, formation and operation of the bank.A new bank needs start-up capital to buy land, build new buildings or rent space, equip facilities, and hire staff, all of which require large amounts of capital.

3. Capital increases the public's confidence in the bank and eliminates the doubts of creditors (including depositors) on the bank's financial capability.Banks must have sufficient capital to convince borrowers that they will be able to meet their credit needs in a recession.

4. The capital funds the growth of the bank and the development of new businesses, new programs and new facilities.As a bank grows, it needs additional capital to support its growth and take on the risk of providing new business and building new facilities.The scale of development of most banks exceeds the level at the time of founding, and the injection of capital enables banks to conduct business in more regions and establish new branches to provide convenient services for customers.

5. Capital, as a factor regulating bank growth, helps to ensure long-term sustainable growth of banks.As the bank's risk increases, the ability of the bank's capital to absorb losses will also increase. If the bank's loans and deposits expand too quickly, the market and regulatory agencies will send a signal, requiring it to either slow down or increase capital.

6. Capital has played an important role in the wave of bank mergers.Under the rules, lending to a single borrower is capped at 15 per cent of a bank's capital, so banks that don't grow capital fast enough can find themselves losing market share in the race for big clients.

The capital of commercial banks can be said to be the lifeblood of commercial banks and an important pillar for the stability of banks.Therefore, the financial regulatory authorities and international financial regulatory organizations have made relatively strict regulations on the capital adequacy level of commercial banks, and at the same time strictly supervised them.

[links to related words]

Bank capital refers to the currency invested by bank shareholders in order to earn profits and the income retained in the bank. Its connotation is broader than general capital, and certain debts can also be included in capital according to actual conditions.

Registered capital of a bank refers to the capital specified in the bank's articles of association when the bank registers with the administrative department for industry and commerce.It tells how much capital the bank will operate with.

Paid-in capital refers to the capital actually invested in the bank by bank investors (shareholders).

Equity capital is also called equity capital, shareholder equity or owner's equity.This is the bank's equity, which is the balance of the bank's total assets minus total liabilities.It includes such items as capital fund, common reserve fund, retained profit and surplus reserve fund.

(End of this chapter)